According to a new report, AT&T Mobility (NYSE: T) and T-Mobile US (NYSE:TMUS) are positioned for strong ARPU gains going forward, according to analysts at Jefferies.
Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata said in a research note that AT&T is likely going to report lower handset subscriber ARPU than it did in the second quarter. In the second quarter AT&T said its "phone-only" postpaid average revenue per user was $61.26, down 1.6 percent from a year ago. However, AT&T said that when adding in its Next monthly equipment billings, ARPU actually climbed 6.1 percent year-over-year to $68.29.
"We expect handset ARPU decline rates to worsen a bit" compared to the second quarter, the analysts said, but they added "we believe this will mark the turning point for sustained improvement in ARPU trends heading into 2016."
AT&T said last week that it "expects more than 2 million total net adds in the third quarter with gains in every customer category (postpaid, prepaid, connected devices and reseller)." The company also said it expects "positive branded voice net adds in the quarter."
AT&T, along with the rest of the nation's wireless operators, is scheduled to report third-quarter results in the next few weeks.
As of early September, T-Mobile CEO John Legere said that T-Mobile had already exceeded the total net customer additions it reported for the second quarter, when it had 2.1 million. The Jefferies analysts they "expect improving handset estimate revisions, albeit at the expense of somewhat lower margins" at T-Mobile.
The Jefferies analysts also noted that during the quarter T-Mobile "shifted promotional activity from its signature unlimited plan to tiered plans and leased handsets, actions we believe bode well for ARPU trends, and long-term profitability." Legere said on Sept. 18 that T-Mobile had already matched the number of branded postpaid net customer additions and branded postpaid phone net customer adds it had in the second quarter, which were 1 million and 760,000, respectively. Legere also said T-Mobile has already exceeded the 411,000 branded prepaid net customer additions reported for the third quarter of 2014 and tripled that figure from the second quarter, when it had 178,000.
The Jefferies analysts think T-Mobile will add 825,000 postpaid phone customers in the third quarter, up from their previous estimate of 809,000. They said they expect T-Mobile to add 560,000 prepaid customers, up from their previous estimate of 100,000, for the third quarter.
As for Verizon Wireless (NYSE: VZ), the Jefferies analysts said the carrier's shift to more profitable wireless plans -- and its new iPhone-only upgrade plans -- are "encouraging and reflect a subtle shift over maintaining handset subscriber growth," the analysts said. Despite the shift, Verizon's transition to equipment installment plans will continue to weigh on investors until Verizon's average revenue per account trends stabilize, likely in the second half of 2016, the analysts said.
Meanwhile, at Sprint (NYSE: S), the analysts think that based on recent comments from Sprint's management, Sprint is "on target to delivering positive handset net additions in the quarter," which would be a significantly positive move for the company. However, the analysts sounded a note of caution, explaining that Sprint's "financial condition appears precarious, and the new round of cost cuts and recent price increase for unlimited plans is unlikely to meaningfully improve the company's [free cash flow] generation over the near term. Should the company not be able to reap significant benefit from its off-balance-sheet entity structure, we believe liquidity concerns will continue to weigh on shares."
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